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Lease classification

Figure 3-2 summarizes the accounting by lessors for the different lease types (excluding leveraged
leases, which are discussed in LG 7).

Figure 3-2
Overview of lease accounting by lessors

Statement Sales-type lease Direct financing lease Operating lease

Balance □ The underlying asset □ The underlying asset □ The underlying asset
sheet is derecognized and is derecognized and remains on the
the net investment in the net investment in balance sheet
the lease (the sum of the lease (the sum of
the present value of the present value of □ The underlying asset
the future lease the future lease continues to be
payments and payments and depreciated over its
unguaranteed unguaranteed useful life, which
residual value) is residual value) is could extend beyond
recorded recorded the lease term

□ The net investment in □ The net investment in
the lease is increased the lease is increased
by interest income by interest income
and decreased by and decreased by
payments collected payments collected

Income □ Selling profit or loss is □ Selling profit is □ Lease revenue and
statement recorded at lease deferred and selling depreciation expense
commencement loss is recorded at are presented on a
lease commencement gross basis in the
□ Interest income is income statement
recorded based on the □ Interest income is
effective rate of recorded based on the
interest in the lease effective rate of
interest in the lease

Statement □ Cash receipts from all leases should be classified as operating activities
of cash
flows

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